Question

Discussion Questions:

1. What is absolute advantage in trade theory?
2. What is the comparative advantage on international trade?
3. How does absolute and comparative advantage lead to specialization?
4. What are the benefits of comparative advantage?

Answer 1

1) Absolute advantage occurs when a country can produce more goods in quantity than other country.

2) Comparative advantage occurs when a country can produce goods at lower opportunity cost than other country.

3) Absolute and comparative advantage helps country in producing that goods in which they own specialization or the cost of producing is less. Country owning specialization will export that good and import other goods.

4) Comparative advnatage leads to save in resources used to produce goods which eventually leads to sustainable economic growth.